Elementary economics

Front matter

THE MACMILLAN COMPANY

NEW YORK • BOSTON • CHICAGO • DALLAS ATLANTA • SAN FRANCISCO

MACMILLAN & CO., Limited

Part I Outline Of Industrial And Social Evolution Chaptek

1. Getting a Living under Various Conditions . . 1

Industrial stages — The hunting and fishing stage — The pastoral stage — The agricultural stage — The small tool age — The factory era — Topics for discussion.

Colonial and pioneer America — The nineteenth century — Growth of the business unit — The evolution of the shoemaking industry in the United States — The twentieth century — The complexity of modern life — Topics for discussion.

Part II Fundamental Economic Concepts

3. The Production of Commodities 27

Why business is carried on — Exchange — Classification of industries — Essentials of big business — Topics for discussion.

4. Wants and Value 35

Why do people want commodities ? — Utility — Why are land and capital desired ? — Value — Price — Topics for discussion.

V

Vi CONTENTS

CHAPTER PAGE

5. Direction of the World's Workers .... 43

The national income equals the production of the nation — The consumer and business enterprise — Savings — Luxury and waste — The rights and duties of the consumer — Topics for discussion.

Wages — Individual bargaining — Collective bargaining — Arbitration — Minimum wage — Interest — Rent — Diminishing returns — Rent and land value — Profits — Suggestions and topics for discussion.

7. Wealth and Income .69

Distribution of wealth in the United States — Income — Family budgets — Topics for discussion.

8. Growth and Distribution of Population ... 74

The increase in population — Growth of cities — Population and resources — The immigrant in the United States — The Negro problem — Topics for discussion.

9. Competition and Monopoly 81

Regulated competition — Classification of monopolies — Examples of natural monopolies — Topics for discussion.

Part III Economic Problems

Money is a measure of purchasing power — Metallic money — Coinage — Paper money — Credit — Banks — The clearing house — Banks in the United States — Paper money issued by banks — Suggestions to teachers.

11. Forms of Business Organization 101

The nature of business — The single enterpriser — The partnership — The corporation — Bonds — The trust — Cooperation — Governmental enterprise.

CONTENTS vii

CHAPTER PAGE

The importance of the railway — Growth of the American railway — The railway is a monopolistic business — Regulation or public ownership.

13. Municipal Monopolies 119

General principles — Water — Gas, electricity and transportation — Other municipal industries — Topics for discussion.

14. The Labor Force 126

Labor in modern industry — Immigration — Restriction of immigration — Routine work — The migratory worker.

Why is labor organized ? — Relation of employer to employee — Knights of Labor — The American Federation of Labor — The structure of a labor organization — The Industrial Workers of the World — Employers' associations — Topics for discussion.

The labor contract — Attitude of the courts — The advantage of a short working day — Legislation in regard to child and woman labor — Topics for discussion.

Time wage — Piece wage — Premium plans and scientific management — Profit sharing — Cooperation — Topics for discussion.

18. Agricultural Economics . . . . . . . 158

Farming as a business — Peculiarities of the business of farming — Agricultural statistics — Farm tenancy — Farm labor — Riu'al social problems.

What is insurance ? — Social insurance — Workingmen's compensation — Health insurance — Unemployment insurance — Provisions for enlisted men and their families — Topics for discussion.

viii CONTENTS

CHAPTER PAGE

20. Marketing 174

Inefficient methods — Proposals for betterment — Advertising — Topics for discussion.

21. Public Expenditures and Public Debts . . . 180

The functions of government — Expenditures of different governmental units — Analysis of expenditiu-es — Public debts — Topics for discussion.

Governmental income — The budget system — Definition

— Tariffs — Internal revenue — The federal income tax — State and local taxation — The corporation and license taxes

— The general property tax and special assessments — Justice in taxation — Topics for discussion.

23. Industrial Unrest .196

Causes of industrial unrest — Distribution of wealth — Unemployment — The denial of justice — Denial of the right to join labor organ^izations.

Plans for betterment — The single tax — Socialism — National guilds — Anarchism and syndicalism — The program of the sociologists.

Introduction

The Changing World in Which We Live. The world in which we live is an ever changing, restless world ; it is not static or at a standstill. Institutions, laws and ways of getting a living are different to-day from those prevailing when George Washington was President; and before the year 2000 is ushered in many further changes will occur. There is progress, or at least change, as the years go by in government, in moral ideals and in methods employed in industry. " Constant change is the law of life, in institutions as well as in animals."

It is very difficult for us who live in the present age of variety, of luxury and of power over nature, to picture the long, hard journey through which mankind has passed in order to reach the present stage of civilization. The primitive man was but little above the animal ; he lived in caves and hunted and fought as an animal. In the early ages of semi-civilization, men cooked with hot stones placed in wooden vessels. These vessels were coated with clay to prevent burning. Finally, clay vessels were used, and pottery came into being. Sugar was unknown to the Romans, and Washington's residence was without stoves. " The people in the main part of the world never had any potatoes, corn, tomatoes, peanuts, nor turkeys until after America was discovered." The writer's father never saw or heard

B 1 of many things with which we, only a Httle more than a generation later, are familiar, — the automobile, wireless telegraphy, the submarine, the fireless cooker, or a building made of concrete. We of to-day live in a new, wonderful, and constantly shifting world, — a superb moving picture.

A half century has greatly modified the food supply of the people. The monotonous, badly cooked diet of a few decades ago has been replaced in many homes by a wellbalanced variety. " Cheap transportation has brought the products of the tropics to our doors, and refrigeration and canning have annihilated time as far as the food supply is now concerned." The importance of this change in conserving the health of the indoor worker can scarcely be overemphasized. The lighting, heating, and sanitation of dwelling places and workshops have been revolutionized since the day Fort Sumter was fired upon.

Business Activity. Human beings are creatures of wants or desires; and the wants of the modern man and woman are a multitude compared with those of the primitive man or even of the pioneer. These varied wants or desires of the men and women of to-day are satisfied through all sorts of activity, but chiefly as the result of the activity called work or business. In order to satisfy wants and to obtain desired articles and services, men combine and cooperate and struggle and compete with one another in the business and the social world Likewise, groups of individuals and nations do the same thing.

Robinson Crusoe did not have a complicated method of satisfying his wants; and the pioneer of America also supplied his wants in a very simple fashion. But to-day in modern complex society, the wants and desires of the average person are many, and the satisfaction of those wants involves

INTRODUCTION 3

many intricate problems. Many cooperating individuals, not one or a small group, are concerned. Economics is, therefore, a social science. In the social sciences — economics, sociology and political science — the changes in institutions, laws, and ways of getting a living, and their effects upon men in their relations to other men, are studied. In economics, the wants and the satisfaction of the wants of men and women are investigated. Two of the fundamental questions in economics are : why are certain commodities or services wanted ? and how are these wants satisfied ?

It is the intricate mechanism used to supply the wants of men and women, you and me and all of us, the complex mechanism of business, that we are to study. How did the machinery of the business world come into being? Why is it utilized? What keeps it going? These are some of the underlying problems in economics. Wherever an opportunity presents itself to provide an income by supplying the wants of people, sl worker, — a business man — appears to do the necessary service — for compensation, of course, which in turn enables him to buy the products of others. We are also able to enjoy many things in common. Nearly everybody uses the railway. The city waterworks and electric lighting plants are for collective use. Playgrounds, schools, and streets are utilized by many individuals, and as a rule are owned by the community.

What Is Economics? In economics are studied the methods by means of which men get a living or obtain the necessities, comforts and luxuries of life. Economics is a study of the interrelationship of men and women in the business world or in the process of earning a living or of satisfying their wants and desires. Economics is not a science in which the problems discussed can be proved mathematically; and it fairly bristles with controverted points. In the study of the social sciences, the student must always try to look on both sides of a question. He should endeavor to draw his conclusions independently instead of accepting blindly and without question the statements of the textbook or of the teacher. Mere memorizing is of little importance. In many other subjects — language, ancient history, chemistry, mathematics — the student begins the study of the subject with few or no preconceived notions. All is new, and the material does not touch everyday affairs. In economics, the familiar matters of industrial and social life are considered. We all have our preconceptions and our class or interest bias. Although a person without training in engineering would hesitate to offer solutions for difficult engineering problems, and persons without legal training rarely attempt to solve legal difficulties, nearly everybody feels competent to discuss economic problems and to offer definite solutions. The student in economics ought to be cautioned against prejudice and against conclusions based upon inadequate analysis. Economics is an interesting and practical subject, and it is concerned with matters which touch everyday life, — questions of prices and markets, taxation, banking, tariff, wages, rent, transportation, and ownership of property.

1. Contrast the life of the primitive man with that of your neighbor.

2. Name six recent important inventions.

3. Do you know of any recent changes in the diet of the American people ?

4. What different kinds of business are followed by the men and women of your town or city?

5. Why is economics a social science ?

Chapter I Getting A Living Under Various Conditions

Industrial Stages. The characteristics of individuals and of groups of persons are in no small measure the resultant of the occupation they follow, of the manner in which they get a living. The roving, hunting, and fighting tribesman of the primitive world is very different from the land-owning, land-cultivating, stay-at-home farmer of to-day. The hardy and resourceful pioneer who pushed into the American wilderness a few decades ago possessed traits of character which are not fostered through contact with the routine of a big manufacturing plant. Each one of us is in no small measure the product of the training he has received and the environment in which he has lived. The occupation of the adult has stamped him with certain traits and peculiarities which are not easily erased or canceled. The different eras or stages in industrial life, or in the predominant methods of getting a living for the members of the human race, may be classified in five broad divisions : hunting and fishing, pastoral activities, agriculture, small-tool work, and machine or factory employment. The fundamental basis for this arrangement of stages in industrial life is the growing power of men over natural forces and resources. These stages also mark differences in the characteristics, habits, and ideals of men and women; the methods by means of which people associate with one another are also very different in the various stages.

The Hunting and Fishing Stage. The most crude and primitive form of getting a living was through the gathering of berries and nuts, and by hunting and fishing. The primitive hunting and fishing tribes made no effort to keep up the supply of nuts, berries, game, or fish. The savage took what the field, forest, and stream offered. In times of plenty he gorged himself; in times of scarcity he starved. Agriculture, mining, and manufacture — business — were things of the future. The density of population was very low, and large areas were necessary to support the hunter and the nut gatherer. The man of the hunting and fishing stage was a rover because it was necessary to find a food supply. The primitive man could not make the food supply come to him. Consequently, the savage had no fixed habitation ; he was constantly searching for a food supply.

Any encroachment upon the hunting grounds by another tribe meant reduction of food supply. It signified more mouths to feed from the same source of supply; it spelled scarcity. Since the savage could not increase the food supply, the only hope of avoiding starvation lay in driving out or exterminating the intruder, or in finding new hunting grounds. The latter alternative would probably lead to struggle with still another tribe. The savage hunter became of necessity a ruthless enemy of all intruders. All strangers were enemies; they were a menace to the food supply and, hence, to the welfare and even to the life of all members of his tribe. Food — the basic necessity of mankind — was scarce. Other tribes, other hunters and fishers, coming into touch with a primitive tribe or group, meant scarcity and privation. The struggle for existence was bitter, constant, never-ending. To the strong and the crafty, to the tribe which stood together as a unit, went the

GETTING A LIVING 9

victory. The meek, the sympathetic, and the weak were pushed to the wall in the strenuous primitive world of our ages-distant ancestors.

Sympathy and charity for members of other tribes were inimical to the welfare of fellow tribesmen. Cruelty and ruthlessness were necessary to tribal survival and success. Yet, within the tribe teamwork was essential. The members of a tribe hunting large and dangerous game or fighting other savages must band together and hunt and fight together, or suffer destruction. Even in the hunting stage primitive man began to learn that he must unite with others in order to supply his wants and keep out of danger. The savage as well as the civilized man cooperated and combined with others ; but the primitive cooperating group was small and unstable. War in the hunting stage of human existence was a struggle for hunting grounds The strong tribes, the tribes that were strongly knit together, obtained the good food supply, and waxed stronger.

Slavery was not found in the hunting and fishing stage, except possibly within the family. Defeated enemies were slain ; captives were not taken. A slave would have meant one additional person to feed ; to force the slave to hunt for the benefit of his captors was dangerous because weapons must be given him. With weapons in his hand, the slave might turn upon his master; or, while hunting, the former might easily escape. The captives of a hunting tribe were therefore killed ; and sometimes they were eaten, thus adding to the food supply.

Because of the scarcity of food and the severity of the struggle for existence, the population of a given land area, in the hunting stage, was very small. The hunting tribe was composed of a small number of persons; the governmerit of the group was weak and not well organized. The physically strong men and the old men who were shrewd and wise in council dominated. The primitive man faced a multitude of dangers, seen and unseen; fear of impending danger was ever present. He who was supposed to possess the power to propitiate the unseen forces was looked up to. Beligious and other ceremonial forms were emphasized by most primitive peoples. The uncertainty of life and of the fortunes of the chase or the battle are responsible for the firm belief of the savage in luck and magic, a traditional concept which modern people have not entirely outgrown.

The Pastoral Stage. The domestication of animals enabled the primitive man to obtain a food supply in a better and somewhat more certain fashion than that employed by the nut gatherer, the hunter, or the fisherman. The pastoral or shepherd people were able to increase the supply of the means of subsistence. Flocks and herds of domesticated animals or of semi-domesticated animals afforded a fairly stable supply of milk and of meat. Like the hunter, the pastoral people were rovers. They moved as their flocks required new pasturage. The steppe country of Asia is probably the original home of the pastoral people. Private property in flocks and herds began to develop, but not private ownership of land. Little personal property was obtained because little could be carried on the constant journeys from place to place. In this stage of human development are found the beginnings of a contrast between rich and poor. The Jews of the time portrayed in the Book of Genesis were in the pastoral stage, as were also the Britons at the time of Caesar's invasion.

The Agricultural Stage. The crude beginning of the cultivation of the soil marks a revolutionary change in the

GETTING A LIVING 11

mode of living and of associating. The first signs that foretell the rise of modern civilization are found in the discovery of the use of fire and of agricultural implements. As increased density of population was now possible, the soil could be made to provide a greatly increased food supply. Perhaps a thousand times as many people could be supported on a given area under primitive hoe culture as could find subsistence by hunting; and many more can be sustained on an acre under better and more modern agricultural methods.

Slavery now replaced the killing of captives and cannibalism. Instead of killing and eating their enemies, the conquerors put the captives to work. Slavery also gave mankind a much-needed drill and discipline in hard routine labor. The transformation of the primitive, restless hunter, without an inkling of the meaning of regularity and persistency, into the modern business man and routine wage worker has indeed been a long and difficult process.

With the development of primitive agriculture came fixed habitations. The roving tribe was gradually changed into a group which recognized one spot as home to which the men returned from time to time. The men of the tribe continued to be hunters and warriors ; but the women and the slaves became agricultural workers. The idea of private property in land began to appear. Each family wished to reap the fruits of its toil; and this meant more or less exclusive control of certain plots of cultivated or cultivatable land. Since the members of the tribe were more permanently located, better living quarters were presently demanded. The rude hut or house was soon built. Tilling the soil, planting the seed, waiting for the harvest, and saving the necessary seed, all required a gradual growth of foresight unknown to the shortsighted and shiftless hunter. The foundation stones of modern civihzation were laid in the early agricultural stage.

The Small-tool Age. The next step in the evolution of human society is the small-tool or handicraft stage. Towns and town life are found in this era. America was discovered in this period in the history of western Europe. The American pioneer and frontiersman was a handicraftsman using small tools. Manufacturing was always carried on in pioneer days on a small scale, and often in connection with farming. Craftsmen as a rule worked for themselves and used their own tools. They owned the raw material which they used, and sold the finished product. Some countries, for example, China and India, have not as yet reached the factory stage and are still in the small-tool era. Certain industries are also in that stage, for example, the arts and crafts industry, cooking in private homes, and peasant farming.

The Factory Era. The use of steam power and of machinery made possible the factory. The opening of the factory era marked a revolutionary change in living and working conditions. It is often called the industrial revolution. England was the first nation to pass into the factory era. In the United States, it began about a century ago ; in England, nearly a century and a half ago. With the factory, machinery, and the use of steam power, came the rapid growth of cities. The workingmen were forced to live near the factories. In the factory, the raw material, the machines and tools, and the finished product belonged to the employer or capitalist. The workers received compensation in the form of wages. Many kinds of work that had hitherto been performed in the homes were now done

GETTING A LIVING 13

in factories. Both the working and the home environment change greatly as a country passes into the factory era. Both the business unit and the governmental unit grow as better facilities for transportation enlarge the market area.

The agricultural stage represents the high-water mark of slavery. As towns developed and trade grew, slavery was softened into serfdom and indentured service, and finally into the wage system with which we are now familiar. The slave system has never been able to obtain a firm foothold where either the small-tool system or the factory has held sway. Neither did slavery prove eflftcient on the small farm which produced a variety of crops, such as has been characteristic for years of the northern portion of the United States.

Nearly all the important political, social, and economic problems of to-day grow out of the development of factories and great cities. Economics and sociology are fruits of the complex machine period. The nineteenth century made the world a great neighborhood. We of to-day are living in an era of interdependence; all preceding eras or stages in human evolution have been predominantly characterized by self-sufficiency. This fact may be brought out clearly and concretely by considering briefly the industrial evolution which has been going on in our own country. Within a comparatively brief period of time the territory now known as the United States has passed from the hunting and fishing stage to the factory era. Indeed, until the western frontier line faded and frontier life ended a short time ago, within the boundaries of the United States could be found all the different stages of industrial development. Within a generation, the United States has passed from a position of international isolation to one of world leadership.

These five stages present with considerable historical accuracy the course of events in the evolution of human industry; but such a consideration alone omits reference to the very significant changes in the attitude of workers seeking a living towards the methods of prosecuting such endeavor. The primitive man, like the animals, was guided chiefly by instinct, by guesswork, by luck, by a belief in the operation of magic, and by a reliance upon sacrificial ceremonies. Only in recent years, after the factory age has been reached, do reasoning and scientific planning in industry displace instinct, luck, guesswork, and reliance upon magic. Business, the use of markets, and division of labor reach back into the small-tool and even into the agricultural stage ; but business does not attain a high state of development until the factory period is entered. Even war, which is a survival coming down from the hunting and fishing stage, is now to a large degree a matter of technology. Factories are as essential as fortifications and firing lines.

The primitive man would not hunt or go to war unless the signs and omens were auspicious, or until he had sacrificed to the gods. The early agriculturist would only plant at certain times and according to certain definite ceremonial forms. There are to-day American farmers who insist that certain crops should be planted '' at the right time of the moon." The great majority of the men and women of to-day are influenced by certain hard and unyielding prejudices and inherited concepts coming down from the early ages of human existence. Reason and science continually meet as obstacles prejudice and superstition ; but gradually the former are gaining upon the latter.

GETTING A LIVING 15

1. Why did the members of hunting tribes often " go hungry" ?

2. Why was it necessary for primitive men to band together into groups and tribes ?

3. Why did the beginnings of agriculture cause important social changes ?

4. Do you know of any industries now in the small- tool stage ?

5. Are you acquainted with any person who believes in " signs " ?

Chapter II Industrial Progress In The United States

Colonial and Pioneer America. During the colonial and revolutionary periods in American history and for some years after, industry in this country was in the small-tool stage. Manufacturing was carried on in the home and in the small shop. The typical American of a century ago, as in the earlier periods of our history, was the hardy, selfreliant pioneer farmer who lived his life in isolation from his fellow men. Each family produced for itself nearly all that it consumed. Exchange of products with others was inconsiderable. Meat, butter, grain, and horses were often exchanged for sugar, salt, spices, and certain manufactured products, such as farming implements and tools. The farmer was a jack-of-all-trades. He was not only a farmer but also a blacksmith, carpenter, butcher, carrier of products, hunter, and primitive policeman. The pioneer performed numerous tasks each and every day; and the particular kind of tasks to be performed varied with the weather and the season and the year. The hours of daily toil were long, usually from sunrise to sunset; and the chief sources of power were three : men^ horses, and oxen. The farmers and other workers of a century or more ago knew little or nothing of the minute division of labor and the routine work with which we of to-day are so familiar. The typical American of early times was in a large degree independent of the outside world. He knew very little about the people and the living conditions beyond the boundaries of the township or the county or possibly the state in which he Hved.

When men did associate or work together, it was of necessity only in small groups. There were no large cities and no huge smoking factories; and the means of transportation and of communication were still very primitive and extremely slow and uncertain. Before the Revolutionary War, it took a week to go from Boston to New York City — a distance of 230 miles by stagecoach. In the first years of the nineteenth century, five and one-half days were required to journey from Philadelphia to Pittsburgh, — a distance of 310 miles. The work of the average American of a century ago tended to bring him into contact with many kinds of simple productive activity, but his isolation from the outside world tended to give him a narrow and provincial view of life. However, the railway and the steamboat and the telegraph were soon to cause revolutionary changes. The Nineteenth Century. The nineteenth century was an epoch of extraordinary industrial and business progress and of revolutionary changes in social and political conditions. The economic problems to be studied in Part III are practically all products of the nineteenth century. England led the way in the use of machinery and of steam power. The first factories were for the manufacture of cloth. By 1820, in the rapidly growing towns and cities of America, a great variety of craftsmen were working at their trades, and textile factories were becoming numerous. The old and simple industrial era was changing rapidly in the northeastern portion of the United States. At the end of the century there were more than a half million manufacturing plants in this country, employing over five million wage earners, and annually producing products valued at over thirteen thousand millions of dollars. The number of workers employed in manufacturing alone in 1900 was nearly as great as the entire population of the nation in 1800.

The completion of the first great American canal, the Erie Canal, in 1825, which joined the Hudson River with the Great Lakes, reduced greatly the obstacles to trade and communication between the Atlantic seaboard and the great central portion of the nation. The pioneer American railway was the Baltimore and Ohio. Construction began in 1828 ; in 1830, thirteen miles of line were placed in operation. The first transcontinental railway route linking the Pacific coast to the Mississippi valley and the Atlantic states was opened in 1869. The railway network grew rapidly. In 1850, the railway mileage was 9000; in 1860, 30,600; in 1880, 93,000; in 1910, 240,000. Along with the evolution of the railway has come progress in manufacturing, mining, and merchandising.^ A brief discussion of the growth of the business unit and of one particular industry will serve to illustrate the connection between transportation and other forms of industry, as well as to picture the course of events during the nineteenth century.